OSC issues warning to CP Ships over disclosure delay

The Ontario Securities Commission issued a warning letter Thursday to CP Ships, saying the company should have immediately advised investors when it realized it would have to restate some financial results, rather than wait for two months while it determined the extent of the restatement.

CP Ships told investors on Aug. 9, 2004, that its published financial statements for the first quarter of 2004, all of 2003 and all of 2002 were wrong. It also issued restated results that lowered profit for the period by at least $35 million.

However, the OSC said CP Ships management had determined in June 2004 that the financial statements needed to be restated. It said that information should have been disclosed immediately.

"Issuers need to be cautious that, once an obligation to restate financial statements is identified, that determination may, in itself, be a material change requiring disclosure, even though the quantum of the restatement may not yet have been established," said Michael Watson, the OSC's director of enforcement.

The commission also investigated trading by four insiders at the company between May 19 and June 4, 2004, at a time when they knew second-quarter results would come in below analysts' estimates.

The insiders had been granted permission to trade by either CP Ships chairman or the VP General Counsel and Secretary.

The OSC said the trades allowed the insiders to avoid losses that would have occurred when the results were made public, triggering a drop in the share price.

"Issuers and insiders should be aware that if the forthcoming financial results of an issuer are expected to vary materially from publicly disclosed analysts' expectations, it is [OSC] staff's opinion that this is an undisclosed material fact," Watson said.

The insiders subsequently made restitution of $1,434,112 to CP Ships, representing the loss avoided on their trades.

The OSC said its staff and CP Ships have agreed that this money will be redirected to the Mutual Fund Dealers Association Investor Protection Corporation, an industry protection plan for customers.

The commission said it also took into account the "high level of co-operation" received from CP Ships and its advisors "and having regard to the circumstances of which we are aware, it is possible to adequately protect the public interest by issuing a caution rather than commencing formal proceedings."

Shares of CP Ships (TSX:TEU)closed down two cents at $19.00 on the TSX.